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Avoiding inheritance taxes in family firms
Author(s) -
Shin Hojong
Publication year - 2020
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12308
Subject(s) - inheritance (genetic algorithm) , inheritance tax , stock (firearms) , business , monetary economics , economics , market economy , tax reform , state income tax , genetics , gene , biology , mechanical engineering , engineering
This article documents a novel way to transfer control in family firms while avoiding inheritance taxes: intragroup mergers. I provide evidence that avoiding inheritance taxes is the motivation behind intragroup mergers in Korea. In 1999, Korea initiated a tax reform that bumped up personal inheritance taxes by 25 percentage points. In the posttax‐reform period, I find that family firms increase stock‐for‐stock intragroup mergers involving targets owned by heirs. Specifically, firms with heavy inheritance taxes acquire affiliates owned by heirs, who then convert private target shares into acquirer shares while avoiding inheritance taxes.